As expected, the Japanese central bank did not change its key interest rate and intends to reduce bond purchases.

As the central bank announced in Tokyo on Tuesday, the key interest rate will remain at 0.5 percent. The decision was made unanimously, according to the statement. Economists had, on average, expected the key interest rate to remain unchanged.

Last year, the Bank of Japan (BoJ) ended its negative interest rate policy and returned the key interest rate to positive territory. It last raised the key interest rate by 0.25 percentage points in January and has not made any changes since.

As the announcement further states, the central bank plans to reduce the pace of its monthly bond purchases in the future. The volume of purchases is to be reduced to 2 trillion yen (just under 12 billion euros) per month by the first quarter of 2027. However, the decision was made by the central bank's Monetary Policy Council with one dissenting vote.

The central bank began reducing its monthly gross purchase volume last summer, said bond expert Volkmar Baur of Commerzbank. He estimates that the BoJ has purchased bonds worth around 4 trillion yen per month over the past two months.

In assessing the economic situation, the central bank assumes that there is "some weakness in some areas." However, overall, the Japanese economy has "recovered moderately." Furthermore, inflation expectations have "increased moderately," the statement continues.

The monetary policy decisions have once again demonstrated that the Bank of Japan will continue to proceed cautiously in case of doubt and is struggling to surprise the market, commented Commerzbank expert Baur. In the foreign exchange market, the Japanese yen barely reacted to the monetary policy decisions and the statements on economic developments.